Community bankers from around the country have complained repeatedly to me about what they perceive as a regulatory double standard. In case after case, they note that regulators and courts impose only nominal fines for megabanks' misdeeds and regulators go on to approve their mergers. For example, Citigroup agreed to pay investors $2.7 billion for its part in WorldCom's bankruptcy. J.P. Morgan paid $135 million for its part in the Enron scandal. This proved to be less than a speed bump for its acquisition of Bank One; the case was barely alluded to in the 63-page approval decision. UBS was fined $100 million for providing U.S. currency to Cuba, Libya, Iran, and Yugoslavia. It was also ordered out of the business, which was not particularly profitable in any case.

While some of these fines and settlements may seem large to the average person, they are tiny when applied to these companies. Commenting on Citi's WorldCom settlement, an analyst wrote that, "Citi's earning power and existing capital levels allow it to take such a charge without any material adverse impact to capital levels and [with] no impact on dividend policy." (Susan Roth, Credit Suisse First Boston, quoted in "For Citi, $5B Is Price of 'Moving On'; American Banker, 5/11/04)

A relatively large community bank like Riggs ($6 billion) in Washington, D.C., suffered more serious consequences when it failed to file Suspicious Activity Reports on certain embassy transactions. Regulators forced significant management changes and the bank is exiting its signature line of business, handling the banking needs of the diplomatic community. Analysts believe Riggs may even lose its independence.

The vast majority of community banks undergo even harsher treatment. Their management is (properly) held strictly accountable for everything that happens in the bank. As a former community banker, I can personally relate to my members' reports. State and federal regulators hold a bank's management responsible for everything that happens in the bank - from its culture to the actions and deeds (and misdeeds) of its staff and alliance partners. If they cross the line, both the bank and management are punished. There are no exceptions.

I strongly urge your agency to review its policies, comparing the fines and other punishments that it applies to the largest banks it regulates with those it metes out to the rank and file. It is important to eliminate the perception that large banks are above the law and can commit serious offenses without facing serious consequences.